HN Hub - Do you know what is an unfair contract/agreement?

1. Unfair contracts are a potential trap for all businesses that do not have their agreements prepared by their lawyers, nor their templates regularly reviewed to ensure compliance with recent developments. We are seeing increased legal challenges to out-dated documents.

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The laws relating to unfair contract terms are to be found in:

(a) The Unfair Contracts Act 2023 (Cth).

(b) The Competition and Consumer Act 2010 (Cth) (Competition and Consumer Act).

(c) The Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

(d) Both (b) and (c),

2. A contract to which the unfair contract terms legislation will apply is:

A contract between large companies only.

Any contract worth $100,000 or more.

A standard form contract.

All contracts.

3. Unfair contract terms apply to contracts provided by:

Large companies to individual consumers.

Big businesses to small businesses.

All businesses to individual consumers.

Any business to another business or an individual consumer where it is a standard form contract.

One business which has greater bargaining power to another business or individual.

4. A term of a standard form contract is likely to be unfair if:

Any terms are not reasonably necessary to protect the legitimate business interests of the supplier of the contract.

Reliance on those terms by the supplier of the contract would cause significant financial or other detriment to the receiver of the contract.

The receiver of the contract is not able to negotiate to change any of the terms of the contract.

Any of the terms create a significant imbalance in the rights and/or obligations of the parties.

Any terms are hidden, ambiguous or not readily understood.

All or any of the above.

5. An example of a standard form contract is where:

The supplier of the contract has used the same form of contract previously.

The form of the contract was in existence before any parties to it had any negotiations.

The contract does not take into account specific characteristics of any of the parties.

There is no effective opportunity to negotiate any of the terms.

The supplier of the contract pulls it out of their top drawer and demands that the other parties sign it without reading it.

All or any of the above.

6. If a standard form consumer or small business contract is deemed to be unfair (or have unfair provisions in it):

A court can declare the offending provisions void.

A company can be liable for a penalty of up to $50 million.

An individual can be liable for a penalty of up to 5,000 penalty units.

A company or individual can receive a penalty of 3 times the benefit derived or detriment avoided by the unfair terms.

A company can be fined 30% of its turnover.

A court can make any order it considers appropriate to redress the unfairness.

A combination of the above.

7. If a standard form contract to which the ASIC Act applies is deemed to be unfair (or have unfair provisions in it), the penalties which ASIC can seek a court to impose are:

The same as for consumer/small business contracts.

Much larger than for consumer/small business contracts.

Not as high as they are for consumer/small business contracts.

8. Unfair contract terms in the ASIC Act relate to:

All companies which are governed under the Corporations Act 2001 (Cth).

Big banks and insurance companies.

Australian Financial Services Licensees.

Any person or entity providing a financial service or financial product to consumers.

Everyone, no matter how big or small.

9. A template CAR or AR agreement which specifies that the authorised representative must indemnify the licensee for all loss and damage which the licensee might sustain is:

Probably fair enough.

Likely to be an unfair term.

OK if the representative earns lots of commissions.

10. A provision in a standard form contract which allows a licensee to pass on to the representative all reasonable costs incurred as a result of the representative conducting business as an authorised representative of the licensee is:

Allowable.

Likely to be an unfair term.

OK if the representative earns lots of commissions.

11. A provision in a standard form CAR or AR agreement which permits the licensee to require copies of (or evidence of) all financial advice provided to clients by the representative is:

Probably fair enough.

Likely to be an unfair term.

A breach of the Privacy Act 1988 (Cth) in relation to client details.

12. A provision in a standard form CAR or AR agreement which permits the licensee to withhold all commissions until compliance with the agreement by the representative is:

Probably fair enough.

Likely to be an unfair term.

OK if the representative has other income streams.

13. A template CAR or AR agreement which specifies that the authorised representative must keep the licensee’s systems and operating procedures confidential after the agreement has ended and each has gone their separate ways is:

Probably fair enough.

Likely to be an unfair term.

OK if the representative only tells his new licensee and no-one else.

14. A provision in a standard form CAR or AR agreement which permits the licensee to inspect all bank accounts held by the representative is:

Probably fair enough.

Likely to be an unfair term.

Reasonable where the licensee thinks the representative might be cheating on it.

15. A provision in a standard form CAR or AR agreement which requires the representative to comply with all of the licensee’s policies and procedures is:

Probably fair enough.

Likely to be an unfair term.

Something a representative should be able to opt out of.

16. The time to review and update template agreements:

Will expire on 31 December 2024.

Is now because new unfair contract terms came into force on 30 November 2023.

Is irrelevant where you have existing agreements in place.